Cannabis industry still unsure when it comes to insurance

Cannabis businesses often have a difficult time finding business insurance. California’s insurance commissioner, Dave Jones, is chairing a new working group established to address this issue.

The Cannabis Insurance Working Group was formed by the National Association of Insurance Commissioners (NAIC) in early August. It comprises insurance regulators from states that have legalized recreational and/or medical cannabis. The plan is to develop recommendations for insurance regulators to take on cannabis businesses.

“I don't have the authority to make [the insurance industry] write insurance coverage, but we’re doing everything we can to encourage them to come into this market,” says Jones.

Businesses that touch the plant—growers, manufacturers, distributors and retailers—have the most trouble acquiring insurance. Some of the insurance gaps Jones has identified are key person insurance (essentially life insurance for the owner or founder of the company), product liability insurance and insurance for cannabis business landlords.

“That has caused challenges in terms of insurance availability because it's a new legalized business,” says Jones. “There continues to be a federal law that makes it unlawful to engage in that business. That has given some insurers pause.”

Jones has been working on providing insurance for the cannabis industry. Some of his efforts include launching an initiative to encourage creation of commercial insurance for cannabis, holding a public hearing on insurance gaps and organizing tours of cannabis businesses for insurance providers.

Jesse Jurado, owner and CEO of San Diego-based Sugarleaf Services, says that input from the government might make it easier for cannabis businesses to get insurance. Founded in 2016, Sugarleaf is an insurance agency specializing in services for cannabis businesses.

“A lot of the people that are under-writing these policies, that are making the decisions on what coverages are going to be allowed, a lot of them are basing it upon what the government's opinion on it is,” says Jurado.

Jurado believes that many insurance providers don’t understand the needs of the cannabis industry. He’s seen insurance agents falsely advertise their knowledge of cannabis and end up offering clients bare bones coverage that doesn’t cover risks that are specific to the industry, such as property and equipment coverage. Jurado has seen misrepresentation from not only insurance agents but clientele as well. There’s been instances where both insurance agents and businesses won’t tell the insurance carrier they’re covering a cannabis business.

“We’ll also see business owners that will call insurance agencies to get lower rates and telling them that they have a florist shop or they have a retail outlet when it's really a dispensary or a cultivation facility,” says Jurado. “That messes up everything for us because one, it makes us look bad and it makes the industry look bad, and two, it's skewing the data.”

Beyond guidance from a government entity like an insurance commissioner, Jurado recommends businesses be transparent with their insurance provider and to find an agent by referral.

Jones adds that insurance agencies misrepresenting their cannabis industry knowledge can be reported to his department's consumer hotline at 800-927-4357.

Says Jones, “If any cannabis business has a complaint about the information they're being provided, or not being provided, by an insurance agent or broker, we'd like to hear about that.”